Roku is hot, but it may need to sell if it wants to take over the TV ad business

Opinion banner

Roku generated plenty of buzz last week when it announced plans to acquire ad tech firm Dataxu for $150 million.

The question is, what will Roku do next?

Because as strong as Roku's position appears to be in the exploding "connected TV ad market," the company's aspiration to build the advertising infrastructure for TV's future is likely to run out of headroom — maybe soon. That's because TV manufactures and titans like Comcast and Amazon are looking to borrow from the Roku playbook, while locking up market share — and maybe freezing Roku out in the process.

Therefore, despite Roku's apparent OTT pole position, it may prove that its next best move is to sell. The good news is that Roku would make for perfect strategic acquisition for a number of aspiring TV players.

In the near term, the Dataxu deal was a clear power move for an early leader in the OTT advertising sector — one that had positively Googley (or is it Googlelian) echoes.

Roku already has its own tech to serve ads on loads of TV apps, and it boasts of robust data on its 30-million-plus users, ranging from registration information to viewership patterns. Now with Dataxu's ad buying platform in place, Roku can have its hooks into every step of OTT ad placement — very much like Google's digital ad stack.

This stack ensures that Roku remains an essential player as this red-hot ad segment quickly develops. That is, for now.

It is worth wondering, what's the end game for Roku? Does the company aspire to build the ad ecosystem for TV's future? Can it realistically get there?

Consider that even as Roku gets bigger, Amazon is selling loads of Fire TVs, and Black Friday/Cyber Monday are right around the corner. Meanwhile, Comcast is giving away free streaming devices.

Bank of America says not to worry about this, rating Roku's stock as a buy.

And yes, it's true that Roku can gain distribution by not just selling hardware, but by baking its software into more and more television sets. But the company seems to have a natural ceiling, since non-Roku households aren't easily converted into Roku homes. Which limits brands ad targeting options. I could be wrong about this, but TV ad tech looks to be shaping up like an all-or-nothing prospect — your TV is likely reachable via a single ad delivery system, unlike a few hundred on the average web page, right?

So how does Roku get bigger?

One route Roku could go is to try and give its ad tech away to anyone else who'll take it. For instance, could Roku agree to hand over its ad delivery software to Xbox and PlayStation (people forget that gaming consoles were TV app devices before it was cool).

Could Roku convince the new CBS/Viacom to plug Roku's ad products into CBS All Access and PlutoTV? Is that crazy?

Or is the right move — the obvious move for Roku — to sell itself to a giant?

Given its $17 billion market cap, the list of potential acquirers is not a long one. Here are some ideas on who might make sense:

  • Disney: The media conglomerate already owns BAM, so it's not afraid to invest in digital technology. What better way to get Disney+ in more homes than to push it on to every Roku device? And maybe push Netflix out of the way in the process.
  • Google: The search behemoth has been dying to break into TV ads in a meaningful way for over a decade. It already has a robust ad serving product that works with the likes of Bloomberg and CBS. But it doesn't control these partners' ad inventory. Roku would give it a massive entry point.
  • AT&T: With Xandr, AT&T has already built a vibrant platform for addressable (set top-driven) TV ads. Roku could push it into OTT rapidly. That is, if the feds were OK with it (or any prospective deal for that matter, in these privacy-sensitive times).
  • Samsung: The electronics giant has quietly built its own fledgling ad business via its own smart TVs. Would Roku help it leap to a different level?
  • Facebook: Does Facebook still want to get into the TV business? It tried a few years ago, if you recall, and quickly bailed. It's consumer data is perfect for a more robust TV ad targeting future. But again, would regulators let Facebook get more consumer data?
  • Amazon: This kind of move isn't very Amazon-y — the company has built most of its ad business from scratch. But Roku + Fire would make the ecommerce juggernaut into an OTT ad juggernaut.

Roku's not quite a juggernaut. But it's got a lead most media companies would kill for.

Leave a Reply

Your email address will not be published. Required fields are marked *